YUM - The U.S. Appears To Be in a Secular Decline

  • YUM's U.S. business has performed poorly and management does not hold out any hope that things will improve anytime soon. Management echoed previous commentary regarding its disappointment with the U.S. business, and it also seemed to indicate that a fundamental improvement in trends would not occur in the near term, given that many initiatives will be rolled out over '08 and well into '09. Consistent with continued negative same-store sales growth, U.S. EBIT continues to decline, despite the resilience of a highly franchised model.
  • Recently, management suggested that it is looking to mirror MCD's success by leveraging its current asset base, with more innovative menu offerings, daypart expansions (breakfast, late-night), and an even better value proposition. Many of the new offerings (Taco Bell's Fresco Healthy Line, Pizza Hut's Tuscani Pastas, and KFC's Grilled Chicken) appear enticing, yet will take time to roll out across the system. In our view, the new product pipeline does not address the structural issues associated with an old out-dated asset base.

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